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griffy
Returning Member

disbursements

Are there tax benefits/incentives to leaving profit in the business checking account at year-end? Do you recommend profit disbursements quarterly or annually?

4 Replies
AdamNe
Employee Tax Expert

disbursements

Hello @griffy ,

 

The tax treatment of your profit distributions depends heavily on the type of  business entity you are involved in. Can you give me more information about your business? Is it incorporated as an LLC? If so, are you the only owner? 

 

 

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griffy
Returning Member

disbursements

Currently the owner of an LLC but thinking about taking on a partner and using a holding company.

AdamNe
Employee Tax Expert

disbursements

So, as the sole owner of an LLC, you are considered a "disregarded entity" by the IRS, which basically means that the IRS does not recognize any difference between income and expenses for your company and income and expenses for you personally. You file your taxes on Schedule C on your personal tax return. 

 

What this means in terms of profit distributions is that any profit is automatically distributed 100% to you automatically. Whether the profit is kept in a business checking account or a personal one will not have any effect, and the timing of distributions will also not have any effect. 

 

Keep in mind, tax implications of profit distributions may change depending on the direction you take with your business entity in the future! 

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Critter-3
Level 15

disbursements

@griffy 

 

If you will be changing from a single member LLC  to any other entity (partnership or corp) then please consult with a local professional to get educated on this  situation before you do anything.  

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